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The Eurozone crisis – April 2012Richard PortesLondon Business School and CEPRThe Eurozone crisis of 2011–12 is a sequel to the financial crisis of 2008–09. It wouldhave been much easier to contain and resolve had there been no global financial crisis,no deep recession in the advanced countries. It is therefore too facile, indeed wrong, tosay that the Eurozone crisis is essentially or even mainly due to inherent faults in themonetary union. Nevertheless, the crisis has exposed genuine faults that were neithermanifest nor life-threatening before 2008–09. They might have been remedied withgradual progress towards a deeper economic union. But all that is for the economichistorians. We are where we are, and it is not pretty.Government bond yields for several of the 17 countries in the economic and monetaryunion (EMU) were unsustainable in November 2011. They then fell back, with theECB’s longer-term refinancing operation (LTRO). But they are climbing again – moreon that below. The spread over the German ten-year government bond (the Bund) wasclose to zero for most of the period from 1999 to 2008. Now, however, of the EMUgovernment bonds, only Germany is regarded as a risk-free ‘safe asset’. Even that isnot totally clear, since the credit default swap (CDS) premium for Germany was at 110basis points in November 2011 (it was 40 in July). The CDS market is by no means areliable guide to default risk, but it does give information about sovereign bond prices 1 ,and the message is disturbing.1 Portes (2010), Palladini and Portes (2011).35